IIP base revision may raise GDP estimate: Crisil

Rating agency Crisil today said the revision of base year for calculating the Index of Industrial Production (IIP) is expected to raise India’s economic growth estimate from the current 8.5 per cent to 8.9 per cent for 2010-11.

The final economic growth figures for the last financial year are yet to be released. While gross domestic product (GDP) estimates took into account IIP numbers, compiled by the Central Statistics Office (CSO), with 1993-94 as the base year, the new figures are based on 2004-05.

According to a Crisil study, ‘How robust is India’s GDP estimate?’, large revisions in GDP estimates in recent years have led to questions on the robustness of these estimates. The current method of computing GDP underestimates the size of the Indian economy. The study also flagged four issues on accurate estimate of GDP.

The revision of the IIP base year was just one of the many issues that plagued GDP estimation, Crisil said, adding the study identified three other key issues. First, the current method does not accurately measure the contribution of the unorganised sector. Second, the estimation of service sector GDP is constrained by the absence of appropriate price indices to convert nominal GDP into real GDP. Third, GDP estimates do not account for improvement in the quality of goods. The report said though nearly half of India’s GDP originates in the unorganised sector, CSO surveys capturing this data are carried out only once every five years.